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How Do You Qualify for a USDA Loan After a Previous Foreclosure?

November 22nd, 2013 by usdaadmin

Qualifying for a USDA Loan after a Foreclosure

USDA guidelines update

Due to a variety of reasons, foreclosures are not always a result of financial mismanagement, but instead due to unique events that may not have been under the homeowner’s control. Depending on the factors involved, a USDA Rural Home Loan may be a solution.

USDA Qualifying with Foreclosures

  •  USDA guidelines currently require that a foreclosure be finalized over 3 years ago for qualifying purposes.
  • In cases when a foreclosure has been less than 3 years, exceptions are possible but the following will need to be reviewed: Was the activity temporary in nature? What is the hardship reason for the situation? These include death of a spouse, job transfer or relocation or a medical hardship for the borrower or family.
  • Further documentation may need to be provided such as: Letter of explanation from the borrower detailing the circumstances and why it was temporary in nature and not likely to repeat.
  • Supporting documentation such as: Medical bills, court Papers, transfer paperwork, etc.
  • Another factor to consider is when did the deed of the property foreclosed upon actually transfer ownership?

In addition,

  • Credit Scores will contribute towards loan approval: Higher scores give more flexibility with automated approvals and underwriter discretion. Lower scores can be cause for denials or require the need for additional documentation.
  • All loans are case by case scenario and a specific score does not guarantee approval and minimum credit conditions will apply
  • Compensating factors can help for loan approval: Low debt ratios, stable job time (2+ years on the same job), established reserves (checking, savings, 401K, etc.) and verifiable rental history with no late payments. 
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